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Environmental and social disclosure, managerial entrenchment, and investment efficiency

Author

Listed:
  • Duong, Hong Kim
  • Wu, Ying
  • Schiehll, Eduardo
  • Yao, Hong

Abstract

This study investigates the effect of environmental and social (E&S) disclosure and managerial entrenchment on investment efficiency. E&S disclosure increases not only capital accessibility but also external monitoring of entrenched managers’ actions. We develop a theoretical model that demonstrates how these benefits and costs of firms’ voluntary E&S disclosure affect investment efficiency. Using a large sample of U.S.-listed firms over the period 2016–2022, we test the model’s predictions and provide empirical evidence suggesting that E&S disclosure is positively associated with investment efficiency and that this effect is stronger for firms with lower managerial entrenchment or those disclosing more financially material E&S information. Our study contributes to the investment efficiency literature by demonstrating the relevance of an incentive-compatible mechanism reflecting managers’ choice of E&S voluntary disclosure to the efficient capital allocation.

Suggested Citation

  • Duong, Hong Kim & Wu, Ying & Schiehll, Eduardo & Yao, Hong, 2024. "Environmental and social disclosure, managerial entrenchment, and investment efficiency," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(3).
    • Handle: RePEc:eee:jocaae:v:20:y:2024:i:3:s1815566924000353
    DOI: 10.1016/j.jcae.2024.100435
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    More about this item

    Keywords

    Investment efficiency; Sustainability reporting; Managerial entrenchment; Financial materiality; Agency theory; E&S disclosure;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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